July 5, 1995
The Honorable William L. Clay
Ranking Minority Member
Committee on Economic and
Educational Opportunities
House of Representatives
The Honorable Major R. Owens
House of Representatives
In fiscal year 1994, the Equal Employment Opportunity Commission (EEOC)
received over 90,000 discrimination complaints from employees, almost
twice the number filed in 1981 and 10 times the number in 1966. The
number of employment law cases filed in the federal courts has increased
similarly.1 In resolving these complaints, employers have become more
and more concerned about the costs—in time, money, and good employee
relationships. In response, some employers have adopted internal
alternative dispute resolution (ADR) approaches, including arbitration, that
is, submitting disputes to a neutral third person—an arbitrator—for
resolution. Some require their employees to agree to mandatory, binding
arbitration of discrimination complaints as a condition of their
employment, forcing employees to waive the right to sue.
To determine the extent to which employers in the private sector have
implemented ADR approaches, you asked us to determine (1) the extent to
which private-sector employers use ADR approaches, especially arbitration,
to resolve discrimination complaints of employees not covered by
collective bargaining agreements 2 and (2) the fairness of employers’
arbitration policies.
To determine the extent of the use of ADR approaches, we sent a
questionnaire to a stratified, random sample of 2,000 businesses that had
(1) filed equal employment opportunity (EEO) reports with the EEOC in 1992
and (2) reported having more than 100 employees. ADR approaches include
negotiation, fact finding, peer review, internal mediation, external
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mediation, and arbitration. The following are the definitions of these
approaches we used in the questionnaire:
Negotiation is a discussion of a complaint by the employee and employer
and, if appropriate, their counsels, with the goal of setting the terms of a
resolution. Negotiation does not require involvement of a neutral party and
could include an open door policy, that is, a policy that guarantees an
employee the opportunity to discuss his or her complaint with a senior
manager without fear of reprisal.
Fact finding involves a neutral person—someone either within the
company or external to the company—investigating a complaint and
developing findings that may form the basis for resolution. This would not
include formal investigations of charges by government agencies, such as
the EEOC.
Peer review involves a panel of employees or employees and managers
working together to resolve employment complaints.
Internal mediation is a process for resolving disputes in which a neutral
person—trained in mediation methods—from within the company helps
the disputing parties negotiate a mutually acceptable agreement. This
process does not lead to an imposed solution.
External mediation is a process for resolving disputes in which a neutral
person—trained in mediation methods—from outside the company helps
the employer and employee negotiate a mutually acceptable agreement.
This process does not lead to an imposed solution.
Arbitration involves a neutral person—an arbitrator from outside the
company—deciding how the complaint is to be resolved. The arbitrator’s
decision is usually binding on both the employee and the employer.
To obtain more detailed information on ADR approaches, we telephoned
those employers who had reported using arbitration and asked each of
them to send us a description of the arbitration policies used. As part of
our assessment of the policies, we compared the policies’ provisions with
the key quality standards3 proposed by the Commission on the Future of
Worker-Management Relations 4 as standards for a private arbitration
system that ensures employees a fair and full airing of their complaints.
Further details of our scope and methodology, including sampling errors,
are discussed in appendix I. Unless specifically noted, sampling errors do
not exceed plus or minus 5 percent. Our review was performed in
accordance with generally accepted government auditing standards
between April 1994 and April 1995. The questionnaire is reproduced in
appendix II, along with a summary of the responses.
Results in Brief
We estimate, on the basis of our questionnaire results, that almost all
employers with 100 or more employees use one or more ADR approaches.
Arbitration is one of the least common approaches reported. Some
employers using arbitration make it mandatory for all workers.
Employer policies on arbitrating discrimination complaints vary
considerably in form and level of detail. However, some of these policies,
such as those for employees obtaining information and empowering the
arbitrator to use remedies equal to those under law, would not meet
standards of fairness proposed recently by the Commission on the Future
of Worker-Management Relations, which was established by the Secretary
of Labor and the Secretary of Commerce at the President’s request.
Background
If workers believe that they have been discriminated against in an
employment matter, they may generally file a charge with EEOC, one of
several federal agencies responsible for enforcing equal employment
opportunity (EEO) laws and regulations.5 Under title VII of the Civil Rights
Act of 1964, EEOC investigates—and may litigate, on its own behalf or on
behalf of the charging party—charges of employment discrimination
because of race, color, religion, sex, or national origin. EEOC has similar
responsibility under the Age Discrimination in Employment Act of 1967,
which prohibits employment discrimination against workers aged 40 and
older; under the Equal Pay Act of 1963, which prohibits payment of
different wages to men and women doing the same work; and under the
Americans With Disabilities Act, which prohibits employment
discrimination against workers with physical or mental disabilities.
In April 1995, EEOC announced changes in the way it processes
private-sector employment discrimination charges. As soon as guidance
and implementation instructions are issued, EEOC will begin categorizing
charges according to three priorities. The first category is for charges that
appear more likely than not to involve discrimination, and these charges
will be fully investigated. The second category includes charges that
appear to have some merit but will require additional evidence to
determine whether a violation occurred. The third category includes
charges that can be immediately dismissed without investigation. EEOC
also announced that it will initiate in October 1995 a voluntary ADR
program using mediation to handle some of its workplace discrimination
charges. Under this planned program, some employees filing charges and
their employers will work with a neutral mediator to settle discrimination
disputes, rather than go through EEOC’s traditional investigative
procedures. If the employer and employee fail to reach a resolution, the
charge will be returned to EEOC’s regular caseload.
If EEOC investigates the charge, it notifies the employer of the charge and
requests information from the employer and any witnesses with direct
knowledge of the incident that led to the discrimination charge. If the
evidence obtained by the EEOC investigator does not show reasonable
cause to believe discrimination occurred—for example, the employee was
terminated for poor performance and not due to discrimination—EEOC
dismisses the case after issuing a “no cause” finding and a right-to-sue
letter. When the evidence shows that reasonable cause exists to believe
discrimination occurred, EEOC tries conciliation. If conciliation attempts
fail, EEOC may go to court on behalf of the employee, although it rarely
chooses to do so. EEOC officials have said that the Commission lacks
sufficient legal staff to significantly increase the number of cases it can
litigate effectively. When EEOC decides not to go to court, it issues the
employee a right-to-sue letter, which allows the employee to sue.
While charges filed with EEOC may lead to legal relief for employees with
valid claims, each charge results in costs to the employer, even though
most are found to be in compliance with the law. Although the employee
does not pay for the EEOC investigation, he or she may incur psychological
costs while pursuing the claim, the average time of which was 328 days in
fiscal year 1994. The federal government also incurs costs for each charge
investigated.
ADR approaches are being considered by employers because “almost any
system is quicker, cheaper, and less harrowing than going to court,”
according to an official of the Equal Employment Advisory Council, an
employers’ group. Their concerns have recently increased as a result of
(1) multimillion dollar jury awards to employees and (2) the provision in
the Civil Rights Act of 1991 that permits punitive damages in cases of
intentional discrimination under title VII of the Civil Rights Act of 1964 and
the Americans With Disabilities Act. In addition, a 1991 U.S. Supreme
Court decision upholding mandatory arbitration for statutory claims
concerning employment disputes in the securities industry 6 has led to
consideration of arbitration in particular. Finally, some employers feel that
ADR approaches can minimize the adversarial relationship between
employer and employee resulting from such complaints.
Footnotes1 In addition to discrimination cases, employment law cases include suits filed by individuals under
such statutes as the Fair Labor Standards Act, the Family and Medical Leave Act, the Employee
Polygraph Protection Act, and the Employee Retirement Income Security Act.
2
2 When unionized employees collectively bargain with employers, arbitration procedures are strictly
controlled by the collective bargaining agreement. The employer and the union negotiate the
(1) disputes subject to arbitration and (2) rules to be followed during arbitration.
3 The Commission proposed six standards relating to (1) selection of the arbitrator, (2) procedures for
aggrieved employees to gather information, (3) payment of the arbitrator, (4) awards and remedies,
(5) final arbitrator ruling, and (6) judicial review. Although the Commission recognized a consensus
among employers and employees that a fair system must provide the right to independent
representation if the employee wants it, this was not included as one of the six standards. However,
we included this feature in our analysis of policies.
4 At the request of the President, the Commission was established in May 1993 and asked to investigate and report back on three primary issues: what changes might be needed in labor-management
cooperation and employee participation to enhance workplace productivity; how the legal framework
and practices of collective bargaining should be altered to enhance cooperative behavior, improve
productivity, and reduce conflict and delay; and what can be done to enable employers and employees
to resolve workplace problems themselves, rather than turn to state and federal courts and
government regulatory bodies. In December 1994, the Commission completed its tasks and issued its
final report, summarizing its findings and recommendations.
5In some instances, employees of federal contractors can file discrimination complaints with the Office
of Federal Contract Compliance Programs in the Department of Labor. Also, 46 states, 40 localities,
Puerto Rico, the District of Columbia, and the Virgin Islands have established fair employment practice
agencies to investigate employment discrimination. Individuals in these jurisdictions generally may
choose to file charges with either EEOC or the appropriate state or local agency.
The views expressed by authors are their own and do not necessarily reflect the views of Resourceful Internet Solutions, Inc., Mediate.com or of reviewing
editors.
